Illinois Needs a Moon Shot

Biosphere Sustainability climate  |modeling | society | unintended Water touches everything. Permanence is the illusion of every age. To create a product that is safe, healthy, affordable, effective, and designed to be returned safely to nature or industry after use. Cradle-to-Cradle Can the company demonstrate to society and investors the link between sustainable business and corporate value? in general: overshoot: Limits to Growth Meadows > Modeling | unsustainability: Finland’s system of social benefits is unsustainable | energy innovation: Breakthrough Energy Coalition | Permanence is the illusion of every age. | carbon-neutral cities: carbon markets, Malmo, Sweden | forums & institutes: Institute for Climate and Sustainable Cities, theinstituteforsustainability, Worldwatch Institute | about: Sustainability Primer | buildings: Living Building Challenge | circular economy: about | globalization: telecoupling big ideas | measure ROI: The Green Scorecard Phillips | Collapse or Sustainability of Societies Motesharrei | Cradle to Cradle McDonough | Crowd Supply | design: Ideas and Integrities Fuller | farming: The Farm Bromfield | Sustainable Freshwater Aquaculture Romanowski | more

by Scott PIckard

For all of us that have a commitment to living out our years in Illinois, it’s a very scary proposition. I’ve got a State pension and who knows what could happen 5, 10, 20 years down the road. I guess I’m going to find out.

Illinois is in a slow bankruptcy burn. I’ve been inside companies that went bankrupt and Illinois has all the signs:

  • overwhelmed by crushing debt that grows daily
  • harassed by creditors from every angle that is slowly grinding the State down
  • a delusional hope springs eternal denial of the problem
  • citizen’s clueless to the real magnitude of the problem; or,
  • they simply don’t give a shit because there is nothing they can do about it and when it all blows up, they will just move on down the road
  • the problem is unfixable
  • the State is checked
  • the State is….. checkmate

The State will eventually hit the wall and either goes through a “simulated” bankruptcy; or, everything and everybody blows away like dust in the wind.

Chris Kennedy and other wealthy businessmen-politicians mean well but will only give us what the classic quote tells us and we all know deep down: “If you keep doing what you have always done, you will keep getting what you have always gotten.” But, I do admire that Kennedy et al want a crack at the State’s Fiscal Gordian Knot and are chomping at the bit to kick out Governor Bruce Rauner on his billion-dollar country club ass.

The politicians will NEVER solve the State’s Fiscal Gordian Knot in our lifetimes. Only the people can solve this by:

  • firing every sitting politician all the way up to the governor
  • hiring a third party turnaround trustee-manager person that does not live in Illinois and is clean of any conflicts of interest
  • have the person report directly to the people
  • have the person manage a “moonshot” competition to develop a 50-year plan to reach financial sustainability
  • any person and/or team on the planet can submit their moonshot plan
  • have the people use “approval voting” to vote for the best moonshot plan
  • the winning moonshot team gets $100M paid out over 50 years contingent on performance of the plan over time
  • while the plan is playing out, re-engineer and revolutionize Illinois government so this never happens again

All you radical-thinking, clear-thinking people out there, here’s your chance to make your mark, never have to work again (unless you want to), save Illinois, and in the process design a revolutionary financial roadmap for the rest of the world because we’re all going to need it.

Crazy, you say?

Have you got a better idea?

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Build Your Own Dashboard of Key Indicators

dash

by scott pickard

One of the most important responsibilities of the CEO is to communicate the current and projected future performance of the organization. A well accepted technique for this is called a “dashboard of key indicators.” If you sit on a Board of Directors, you want to see regular updates of key indicators in an easily accessible, simple, visual format. I’ve found that Prezi provides a perfect platform to do this.

Corporations have the capital to purchase and deploy fancy enterprise systems (or cloud-based systems) and the financial staff to take care of this kind of thing. But if you’re an entrepreneur or small business person, you’ve got to figure out a way to do this for yourself. I will show you a way to do this using Prezi and other common off-the-shelf tools (software) that you probably already have access to.

But first, let me show you what the end product can look like and talk about the benefits of using Prezi.

The beauty of the Prezi dashboard

Online, anytime, anywhere, on any mobile device: I think this benefit is pretty self-explanatory. Click on the following link and it will take you to a public dashboard which we can use as a demonstration:

https://prezi.com/ot85bbsaiqon/dashboard

The picture below shows you that a Prezi dashboard looks great on any device: PC, laptop, iPad, and smartphone.

The infinite whiteboard: Prezi is famous for what they call the “infinite whiteboard” concept. The navigation functionality made possible by this is what makes it so powerful and appealing as a presentation tool.

The first thing most users will do is click on the home icon along the right-hand border of the window which will pop the entire dashboard inside the window giving you the big picture overview of the dashboard.

From this vantage you can navigate one of several ways:

Click on the full-screen mode icon and a slide will fill the monitor screen (similar to presentation mode in PowerPoint). This is the preferred mode when making a presentation to an audience.

The user can either manually advance through each slide by clicking on the right or left arrows on the bottom of the window; or, the user can set “autoplay” to one of several different timing intervals.

On any given slide, the user can zoom in or out at will thanks to the “infinite whiteboard” of Prezi. Back-and-forth, zoom in and out, pop back to home, this is the kind of easy flexibility a user wants when navigating a dashboard.

Privacy: You can share online your dashboard using Prezi’s three-level privacy functionality:

  • Private: only you can view and edit.
  • Hidden: you can view and edit. Collaborators can view if they have the link.
  • Public: it can be viewed by the world if they have the link.

DIY dashboard

To get started you need the following:

  • Microsoft Excel spreadsheet
  • Microsoft PowerPoint
  • Adobe PDF maker
  • Prezi

Creating the graphs: Microsoft Excel gives you everything you need to set up all of your key indicator data and then convert that data into visually impactful graphs and charts. Each chart can be copied and pasted into a PowerPoint presentation file as an image.

Once all your slides are transferred into PowerPoint, you then need to “save as” the PowerPoint file as a PDF file. It is true that you can directly import a PowerPoint file into Prezi but I have found that sometimes formatting of the slides can be lost. By converting it to a PDF file, the formatting of each slide is “locked” and when you import the PDF file into Prezi, each slide comes out perfect.

Next, you import the PDF file into your new Prezi presentation space which you have created online. When you do this, Prezi magically unbundles each slide within the PDF file and arranges them separately in their correct original order.

And finally, you click “edit path” in the lower left-hand corner of your Prezi window to then click on each slide in the order you want them presented, and then click “done”.

You have now created a world-class dashboard!

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cash

cash

by scott pickard

Cash is king, as the old saying goes. It is the one resource a company cannot survive without for any length of time until the doors are closed, voluntarily or involuntarily, which is why the CEO must find or develop a method to reliably understand and predict the company’s current and future ability to generate the cash it needs to pay all of its bills.

Forecasting cash flow is much easier than it used to be, thanks to the convenient number-crunching power of PCs and spreadsheet software which allows one to build an Integrated Spreadsheet which links a projected balance sheet and income statement for the business. The Integrated Spreadsheet is a tool that will give any CEO the positive direct control they must have over the financial rudder of the business.

A wise time investment for CEO’s
A company’s cash flow at any point in time is a juxtaposition of payables, receivables, debt service, capital expenditures, sales/repurchases of stock, and other factors. An Integrated Spreadsheet handles this complex financial interaction with electronic precision. Using this tool, a CEO can more carefully predict where the company is heading. That’s powerful planning and peace of mind for the executive/owner that shoulders the burden of consistently meeting payroll and staying current with suppliers on all bills.

  • The Integrated Spreadsheet gives the CEO a rational way to appropriately pace capital expenditures, quarterly (or even monthly) bonus payments, and sweeps of excess cash into less liquid but higher-returning financial instruments at the earliest possible time.
  • The Integrated Spreadsheet allows the CEO to look at the effect on cash from big-picture business initiatives such as acquiring a new business, selling off a division, developing and staffing a new department, or launching a new product line.
  • Using an Integrated Spreadsheet helps the CEO disclose mistakes that are sometimes made in monthly financial statements from either miscoding or a faulty accounting interpretation of a particular transaction.
  • With an Integrated Spreadsheet the company always has a three-year plan that is built on actual operating numbers, but fine-tuned to reflect management’s best judgment of future revenues and expenses.
  • The Integrated Spreadsheet can easily generate an unlimited number of graphs to analyze past performance and predict future performance which is often the most effective way to communicate financial data to employees, directors, shareholders, and the bank.
  • An Integrated Spreadsheet will demonstrate to the bank, board, and investors that the financial management and budgeting of the company is under control which promotes confidence in the officers and the business by its internal and external constituents.

DIY

Assuming the user knows their way around a spreadsheet and double- entry accrual accounting, the structure of an Integrated Spreadsheet can be set up in a few hours. It will take a day or so to input the previous twelve months of operating data; a day to input informed estimates of revenues, expenses, and capital expenditures for the next twelve months and to fine-tune those estimates; and a day to train all users who will have access to the Integrated Spreadsheet.

If the CEO cannot spare the time, this task can be delegated to inside accounting staff or subcontracted to an outside accountant or consultant. If this project is delegated, it is still important that the CEO be trained in the use of the Integrated Spreadsheet so that he or she can perform what-if analyses and generally watch over the constantly revising forecast of the financials of the business, a function that should be owned by the CEO. Financial forecasting involves hundreds of experience-based estimates of highest-probable outcomes of revenues, expenses, capital expenditures, debt service, equity inflows and outflows, extraordinary gains and losses, and other income and expenses, by someone that has the overview of the business. The CEO has this overview as it is part of the responsibility of the position.

Basic structure of the integrated spreadsheet
It is important for the user to have a general understanding of how the spreadsheet is laid out and functions. The integrated spreadsheet has three major components:

  • Balance Sheet
  • Income Statement
  • Cash flow adjustment

These three components are linked or integrated so that they balance or tie out in accrual accounting terms. These integrated accounts are highlighted in various colors as shown on the diagram below:

cashflow

The major points of integration are identified by the matching colors. For example, the link between “depreciation” on the balance sheet and “depreciation expense” on the income statement is shown in brown, since these two entries must be identical in double-entry accrual accounting. There are in fact numerous links between the income statement and the balance sheet as a result of the double-entry methodology. The beauty of the spreadsheet is it affords the user the flexibility to add/subtract/modify at will and build increasing sophistication into the integrated spreadsheet enabling a more realistic modeling of the financial dynamics of the business.

I’ve posted a power point presentation on prezi that leads you through the basic construction of the integrated spreadsheet. The secret sauce in this process is the synching of a cash flow adjustment (plug) at the bottom of the spreadsheet below the income statement as shown in the diagram below:

2slides

By wiring together these key accounts to calculate the actual cash flow for each month, this will cause what’s known as a circular calculation in the spreadsheet which is normally a no-no, but in this case it is a good thing! The user simply needs to go into “settings” and set the automatic calculation to 100 iterations and the spreadsheet will automatically recalculate and balance the statements after each new value entry to a cell.

Using the tool

Once the integrated spreadsheet is set up, using it effectively involves inputting the actuals from each monthly financial statement as they occur and reforecasting the numbers going forward from the most recent actuals. This process repeats itself every month — inputting the most recent actuals and reforecasting ahead — and as each month goes by and the user gains experience in using the spreadsheet and making experience-based judgments of how the numbers will track, the integrated spreadsheet becomes an expert system that does a better job over time of forecasting the financial fortunes (or misfortunes) of the company. The key point is that all of this boils down to one most important account: cash flow.

Once the process of updating actuals and forecasting ahead is complete,
the CEO looks at the impact on cash and then develops a financing plan
that optimizes the uses of working capital in the next six months and beyond.
If the projected cash flow shows surpluses being generated, the CEO can
decide how that excess cash could be used today and in the coming months
to:

  • Reduce payables
  • Reduce long-term debt
  • Make capital expenditures
  • Make other long-term investments

If the projected cash flow is negative, the CEO must plan for how the
minimum working capital requirements for the business will be generated to
carry the company through tight cash periods by a combination of:

  • Drawing down cash surpluses
  • Deferring certain operating and capital expenditures
  • Extending the payables cycle for a brief period within acceptable bounds
  • Making a draw on an operating line of credit
  • Securing additional long-term financing
  • Raising equity capital through the sale of common or preferred shares

Summary

If the CEO can build the integrated spreadsheet for the business and start using it each month ( if not each day), learning by doing is the most efficient user’s manual. The CEO will quickly discover the many dimensions of value that are derived from the integrated spreadsheet aside from the very tangible value of forecasting cash flow. The integrated spreadsheet causes the user to think about every aspect of the business, across all accounts, across time, across strategies, by looking back to look forward. And at the end of the exercise instead of saying, “I hope we’ll have the money in the bank when we need it,” the CEO can say, “We expect to have the cash we need, and here’s how.”

That’s powerful business confidence!

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Financial Management


Building the Integrated Cash Flow Forecasting Spreadsheet

Why is this guy the #1 ranked CEO in the world?

Management and Best Practices CEO CEOs make 300X more than workers, but are they doing 300X the work? performance evaluation What are the metrics for the top performing CEOs? > Board  Is the CEO in touch with the employee rank and file?  Does the CEO have employees' respect? Does the board require the CEO to complete a self-evaluation?  Has the board benchmarked the strategic performance of CEOs at peer companies?  Is the board responsive to the concerns of shareholders about the effectiveness and responsiveness of management?  On what grounds is the board considering firing the CEO? (a) poor company performance; (b) strategic disagreement with the board; (c) personality clashes; (d) consolidation of control due to merger; (e) unwillingness of CEO to comply with a board mandate; (f) personal problems; (g) illegal/improper behavior succession Promoting insiders is a strategy to maintain consistency, whereas hiring outsiders is a strategy for change. Sessions Has the board challenged the heir-apparent to be compared against external candidates?  Has the board been able to observe and evaluate the heir-apparent in representative trial assignments?  Is competition among internal candidates getting out of hand?  Does the board have a healthy collaboration with the incumbent CEO in the succession process?  Has the board established clear performance benchmarks and an exit timetable for the incumbent CEO?  Is the incumbent CEO attracting, hiring, and developing key employees worthy of succession candidacy?  Is there a turnover problem with top management candidates?  Does the incumbent CEO restrict access by the board to top management?  Should the board consider removing the incumbent CEO from the board?  Is the board developing and maintaining a familiarity with top succession candidates within and external to the company?  Is retirement of the incumbent CEO being delayed by lack of a successor? For the incumbent CEO close to retirement, has the board structured a compensation package to incentivize cooperation with a successful transition? interim CEO Does the board have a plan for an interim CEO in the event of a sudden and unexpected departure or death of the CEO? Does the board need to consider an outside turnaround specialist to manage the current crisis in the company? interviews Are we getting continuous improvement after each interview process? | interviews: Conversations from the Corner Office | videos: CEOcast  books/movies, articles, blogs: Steve Jobs: book, movie | CEO Succession Carey | Effective Succession Planning Rothwell Intersections | Poverty/income gap

Evaluation of a potential investment in a hedge fund

by scott pickard

I would ask to see a 1-paragraph synopsis on ALL of their equity positions, not just five. If the stocks they are selecting intuitively make sense to you, then that’s a good sign. Of the five equity positions they profiled, I liked their explanations and logic behind their positions. It was easy to understand and made sense to me.

Arbitrage trading is simply mathematical gaming and making money for money’s sake. It has nothing to do with investing in the value of a company’s technology and products. If they’re only doing a small percentage of trades using an arbitrage strategy, it may not be a big issue.

Can they show a graph of the growth of the total $size of fund?

Have they been successful in building their base of investors? What is the current number of investors? Have any investors dropped out? Why?

I would ask for a few callable references so that you could get a current investor perspective on SC’s performance and the investors’ perspective on the quality of reporting and customer service. I would also ask to see a sample quarterly report.

The 2% management fee + 20% performance fee is standard. You need to make sure that the performance fee only applies to the net profits, i.e., profits after losses in previous years have been recovered.

It is also reasonable to require that the performance fees include a “hurdle,” so that a fee is only paid on the fund’s performance in excess of a benchmark rate or a fixed percentage. That is to say, the manager is only rewarded if the fund generates returns in excess of the returns you would’ve received if you had invested your money elsewhere.

What protections does SC provide in the event of fraud or breach of any of the provisions of the Subscription Agreement? I see none. There should be a reciprocal indemnification by SC to the one you would be expected to sign to in section D of the Subscription Agreement.

The Memorandum indicates that you can liquidate and withdraw your account with a 90-day notice, but the Subscription Agreement does not mention this.

In section E, “Power of Attorney,” the LLC should be required to notify investor of any substantive changes made to the LLC on investor’s behalf.

IN SUMMARY:

  • I would not make any kind of decision on this investment until you receive good answers to these due diligence questions and issues.
  • The documentation is very sloppy, and that is concerning. I wouldn’t sign the Subscription Agreement until some of these errors are corrected.
  • If there is one SC, there are hundreds if not thousands to choose from. By comparison to the pool of equivalent investment funds you could choose from, they are very inexperienced. And with inexperience comes higher risk.
Personal Time Investing Buy the rumor, sell the news. But, are you listening to the music or the noise? in general: alternative investments: secondmarket | consumer investing behavior: dcisions | earnings whispers: www.whispernumber.com | books: The Only Three Questions That Count Fisher | gamify: kapitall | idea investing: motifinvesting | impact investing: Global Impact Investing Network GIIN | IPOs: www.hoovers.com/global/ipoc/index.xhtml, http://biz.yahoo.com/reports/ipo.html | Morningstar: www.morningstar.com | Motley Fool: www.fool.com | MSN Investor: http://moneycentral.msn.com | regulation: FINRA | short selling: dangerous | Silicon Investor: www.siliconinvestor.com | startups: DataFox | The Street: www.thestreet.com brokers: E*Trade: https://us.etrade.com | Fidelity: https://www.fidelity.com | kapitall | Schwab: https://www.schwab.com | TD Ameritrade: www.tdameritrade.com | thinkorswim

Historically only 18% of fund managers beat the S&P500 index on a consistent basis.

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